Energias do Brasil SA and subsidiaries - EDP no Brasil | Investidores

EDP – ENERGIAS DO BRASIL S.A.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 2009 AND 2008
(Amounts expressed in thousands of Reais, unless otherwise indicated)
revaluation are recorded in net income for the period, excepting as refers to the cash flow hedge derivatives. The
recognition of variations of fair value of the hedge derivatives, in net income for the period, depends on the nature of
the covered risk and on the hedge model used.
Hedge accounting
The Company and its subsidiaries use financial instruments of hedge of the interest rate, foreign exchange variation
and financing risk. The derivatives that do not qualify as hedge derivatives are recorded as trading derivatives.
The hedge derivatives are recorded at fair value and gains or losses are recognized according to the hedge
accounting model adopted, as follows:
i) there is formal documentation of the hedge on the start date of the relationship;
ii) the hedge is expected to be highly effective;
iii) the hedge effectiveness can be measured reliably;
iv) the hedge is evaluated on a continual basis and effectively determined as being highly effective throughout the
financing period; and
v) in relation to the hedge of an anticipated transaction, this must be highly probable and must present exposure to
cash flow variations that could ultimately affect the result.
Cash flow hedge
The effective part of the variations of the fair value of designated derivatives that qualify as cash flow hedge is
recognized in shareholders' equity – asset revaluation reserve. The gains or losses of the ineffective portion of the
hedge relation are recognized by counter entry in net income for the period, at the time the ineffectiveness occurs.
The amounts accumulated in shareholders' equity are passed through net income in the periods in which the
hedged item affects results. However, when the predicted transaction that is hedged results in the recognition of a
non-financial asset or liability, gains or losses recorded in shareholders' equity are recognized by counter entry of
the initial cost of the asset or liability.
When a hedge instrument expires or is sold, or when the hedge relation fails to fulfill the criteria for hedge
accounting, any accumulated gain or loss recorded in shareholders' equity on the date is kept in shareholders' equity
until the foreseen transaction is recognized in net income. When the transaction is not expected to take place, the
accumulated gains or losses recorded by counter entry of shareholders' equity are immediately recognized in net
income for the period.
Effectiveness
For a hedge relation to be classified as such, its effectiveness should be demonstrated. Hence the Company and its
subsidiaries carry out prospective tests on the start date of the hedge relation and on each balance sheet date,
perform tests prospectively and retroactively in order to demonstrate its effectiveness and showing that alterations in
the fair value of the hedged item are offset by alterations in the fair value of the hedge instrument, with respect to the
hedged risk. Any ineffectiveness determined is recognized in results as soon as it occurs.
v) Foreign currency
The functional currency of the Company and its subsidiaries is the Real, according to the rules described in CPC 02 -
Impacts on the Changes in Exchange Rates and Translation of Financial Statements, approved by CVM Resolution nº
534.
Transactions in foreign currency, that is, all those that are not performed in the functional currency, are translated by the
exchange rate of the dates of each transaction. Monetary assets and liabilities in foreign currency are translated into the
functional currency at the foreign exchange rate of the closing date. Gains and losses of variations in the exchange rates
on monetary assets and liabilities are recognized in the statement of income. Non-monetary assets and liabilities
acquired or contracted in foreign currency are translated with a basis on the exchange rates of the dates of the
transactions or on the dates of valuation at the fair value when this is used.
3.3 - Consolidated financial statements
The consolidated financial statements were prepared in accordance with the standards established by CVM Instruction
247, of March 27, 1996 and subsequent amendments, covering EDP - Energias do Brasil S.A., its subsidiaries (as
described in Note 1). The accounting criteria adopted in their/its determination were applied uniformly among the various
companies of the group .
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